What theorem is this a plain-language interpretation of? "Leaving an investment that loses money on average can't turn it into an investment that ever makes money on average, but it can make it lose less money on average." A. Stopwatch lemma B. Feynman-Kac C. Fundamental theorem of investment D. Process reduction E. Martingale replication F. Optional Sampling G. None of the other responses.

Q: The empirical SML is too flat relative to what CAPM predicts. Researchers have focused on which two…

A: The empirical Security Market Line (SML) is a representation of the relationship between systematic…

Q: The best investment ____________________. Select one or more: a. maximizes reward b. maximizes…

A: The best investment depends on an individual's investment goals, risk tolerance, and financial…

Q: ssment of stand-alone basis of asset, which of the following scenarios is correct?   Using a bar…

A: Standard deviation is the measure of risk of security and shows dispersion from mean.

Q: A borrower who takes out a loan usually has better information about the potential returns and risks…

A: Effective risk management strategies and mechanisms, such as thorough due diligence and monitoring,…

Q: Capital Asset Pricing Model is based on certain assumptions, which have been criticized after…

A: Asset pricing is a linear function of the beta value of market return: When the market returns…

Q: Which is least likely?  A. For the risk-seeking manager, no change in return would be required for…

A: Risk and return both are related to each other and depending upon the nature of managers or…

Q: he net present value is incorrect. Can you try the problem again?

A: Net Present Value (NPV) The difference between the present value of the cash outflow and inflow at…

Q: Money-market covered hedges can have variable outcomes while options are certain.   Group of answer…

A: Money market hedge is the hedging technique of locking the future value od exchange rate using money…

Q: Monte Carlo methods is more advantageous with more uncertainties of data in the financial market. It…

A: Monte Carlo simulations are used to estimate the likelihood of various outcomes in a process that…

Q: Are you agree with the phrase(sentence): "The indifference (exchange) risk - return curve slop of a…

A: Exchange rate indifference curve indicates that the change in demand for goods and services with…

Q: What is efficient set? Explain why rational investors will never chose a portfolio below the minimum…

A: What is efficient set?  Various configurations of securities yield various degrees of returns. The…

Q: If NPV and IRR give you different​ recommendations, you should listen to IRR because it is better to…

A: Answer: The correct answer is False.

Q: Which of the following statements is false? (You may select more than one answer.)a. The total-cost…

A: Capital budgeting refers to the process by which long-term investment proposals are evaluated based…

Q: Explain what’s wrong with the following logic to construct multifactor asset pricing models. Start…

A: The model that uses multiple factors to arise at a certain result is called a multi-factor model. It…

Q: Assume that CAPM does not hold and securities may earn abnormal returns. Suppose security A has a…

A: CAPM: It is a model that shows the relationship between the systematic risk & expected return of…

Q: With a decrease in time preference, the supply of loanable funds will increase.   Select one: True…

A: Loanable funds includes all forms of credit, such as loans, bonds, or savings deposits. There is an…

Q: Although we can determine the optimal bid and the expected profit from that bid in a bidding…

A: To determine the probability of winning in a bidding simulation, one must examine several factors…

Q: A disadvantage of using the payback period to compare investmentalternatives is that it;

A: Payback period: The payback period is the time period required to recover the initial investment of…

Q: investments with low return variances usually: a. have a high return standard deviation b. have…

A: d. none of these options   SINCE THE INVESTMENTS WITH  LOW RETURN VARIANCE HAS LOW STANDARD…

Q: 1. a. Prove rigorously "Constant relative risk aversion CRRA implies decreasing absolute risk…

A: The Constant Relative Risk Aversion (CRRA) utility function is provided by W, where W signifies…

Q: Diversification is not at all effective when security returns are __________. a. High b. Negatively…

A: Diversification is a method that mixes a wide variety of investments within a portfolio. The main…

Q: Do you believe on the principle-higher risk provides higher return? Can we achieve high return with…

A: Return is the reward which an investor will get by investing money in return and risk is the chance…

Q: Internal rate of return approach does not address the issues of scale! Discuss?

A: Capital budgeting is a method used for finding the profitability of investment proposals. These…

Q: Which ones identify the disadvantages of the payback rule? A. Very simple and easy to apply. B.…

A: Solution: Payback period is one of the decision making criteria in capital budgeting. It measures…

Q: True or False Investment bankers and other valuation professionals often utilize relative valuation…

A: Long term investments are the investment or assets that are beneficial for the firm for a number of…

Q: In general, what is true of people's risk aversion for changes in income that are marginal (i.e.,…

A: Risk Aversion: It is the propensity of individuals to favor results with low vulnerability to those…

Q: Which of the following is TRUE about liquidity? a. All assets should be put in liquid asset so that…

A: The simplicity with which an asset, or security, might  be changed into immediate cash without…

Q: he investment with the higher payback period is better.  Select one: True False

A: Payback period is the recovery of initial investment from the cash inflows from the investment.

Q: What are the limitations/problems from classifying performance using raw returns? and, What are the…

A: Limitations of classifying performance using raw returns: Raw data may be incomplete and may not…

Q: then these assets vary in

A: The constant growth model is a method for valuing the share price of a stock. It calculates the…

Q: Is the accept-or-reject decision rule the same as in the simple -investment case? Explain how?

A: Yes, accept or reject decision rule is the same as in the simple investment because accept or reject…

Q: In the Vasicek Model , the short term rate cannot go negative . True False

A: The Vasicek Model is a popular interest rate model used to price financial instruments and to…

Q: 1.) Which is false concerning standard deviation? a. The smaller the standard deviation is the less…

A: Standard deviation measures the deviations of dataset from the expected mean . In finance, standard…

Q: hich one speculate decrease in volatility?   Choose 1:   A.   Long straddle   B.   Long…

A: A trading strategy is a set of rules and guidelines that an investor or trader uses to make trading…

Q: MIRR is considered to be a _______ return since it assumes reinvestment at _______. IRR is…

A: The IRR refers to the internal rate of return that equates the present value of cash inflows and the…

Q: Please explain why this statement is (False).  If a security's realized return is negative, it must…

A: The realized return of the security is the return that the security has provided in the past. The…

Q: investors

A: Introduction: Indifference curve is a concept in economics which shows combination of a couple of…

Q: A common approach of estimating the variability of returns involving forecasting the pessimistic,…

A:

Q: Do you think investors should practice dollar cost averaging when investing their money? Why or why…

A: Dollar-Cost Averaging: Dollar-Cost averaging is an investment approach that involves investing an…

Q: Explain why diversification reduces unsystematic risk but not systematic risk.

A: Diversification is a strategy used in investing where a variety of assets or securities are combined…

Q: appropriate option (i) The rate of return method does not take care of timings of returns. (ii)…

A: Investment appraisal techniques are used to identify whether to invest or not in the project.   Rate…

Q: Is there any justification for an investor to invest in assets with a negative beta?

A: Beta is the measure of Risk associated with the investment.The Beta measure the Systematic risk .so…

Q: If the rates of return of two assets tends to move in the same direction, they have a negative…

A: Covariance measures the relationship of direction between the returns on two assets or securities.…

Q: By choosing assets that do not exhibit a high positive covariance with each other, the systematic…

A: Systematic risk is the risk associated with the market and is inherited to all securities in the…

Q: Which of the following statements is true?   Multiple Choice   When NPV is 0, the IRR is equal to…

A: Net present value (NPV) is the value of all the cash flow of the investment (positive and negative)…

Risk and return

Before understanding the concept of Risk and Return in Financial Management, understanding the two-concept Risk and return individually is necessary. 

Capital Asset Pricing Model

Capital asset pricing model, also known as CAPM, shows the relationship between the expected return of the investment and the market at risk. This concept is basically used particularly in the case of stocks or shares. It is also used across finance for pricing assets that have higher risk identity and for evaluating the expected returns for the assets given the risk of those assets and also the cost of capital.